On Thursday Indias largest IT group by capitalization announced an increase in net profits below analysts projection, which caused a sharp drop in shares.
“The expectations from Tata Consultancy were very high after Infosys posted strong numbers, so the company missing estimates has come as a disappointment,” said Sarabjit Kour Nangra, vice president of research at Mumbai-based Angel Broking.
“If expectations are high and valuations are far above their historical average, then even a small miss can see a big correction in the stock,” said for the Financial Times a software analyst at a foreign bank in Mumbai, who asked not to be named.
Infosys, Indias second-largest IT services provider, reported last week a 28.6% rise in quarterly profit and maintained its forecast for sales growth for the year ending March.
TSC stated net profits of INR 53 billion in the quarter ended September, up 14% yearly but below Thomson Reuters analysts prediction of INR54.7 billion. Revenue also trailed expectations at INR 246.6 billion, scoring a 13% increase to INR238.2 billion.
HCL Technologies, the fourth largest IT company in India, also suffered from a drop in shares, 8% to be exact, a day after announcing discouraging results.
According to analyst Abhiram Eleswarapu at BNP Paribas, TSC will have difficulties reaching its forecast of more than 16% organic revenue growth during this financial year. To do so would require a “challenging” jump in revenues over the next two quarters, meaning that target “may now need to be brought down” Mr. Eleswarapu wrote in a report.
TSC had been expected to post strong results from the last quarter, due to the economic uptrend in North America and Europe.
Natarajan Chandrasekaran, chief executive, in a note focusing on growth in the companys Indian operations, explained that lower-than-expected group revenue was due to tough trading conditions in Latin America and the U.K., as well as slower growth among retail clients.
The company also said that it will acquire the remaining shares in CMC ltd. via share exchange. Shareholders in the smaller IT and software company will get 79 Tata shares for every 100 of theirs. TSC owns a 51% stake in CMC. Mr. Chandrasekaran said that buying all of its subsidiarys shares will help reduce costs.
During the quarter TSC won eight big outsourcing orders from the U.S., Europe and the U.K.
Tata Consultancy Services Ltd. lost 0.81% on Thursday and closed at INR 2 678.1 in Mumbai. On Friday the stock fell 8.85% to INR2 441.15, marking an 18.11% one-year increase. The company is valued at INR4.78 trillion. According to the Financial Times, The 55 analysts offering 12-month price targets for TCS have a median target of INR 2 740, with a high estimate of INR 3 300 and a low estimate of INR 2 185. The median estimate represents a 2.22% increase from the last close price of INR 2 678.1.